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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-2, Mumbai, [in short CIT(A)] in appeal No. 081/14-15 dated 29.09.2015. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 3, Mumbai (in short DCIT or AO) for the assessment year 2009-10 vide order dated 20.03.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) restricting the disallowance of bogus purchases by applying profit rate at the rate of 12.5% of the total bogus purchases. For this Revenue has raised following four grounds: -
Shekhar M Kharote (AY:09-10) “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying on the decision of Supreme Court in the case of Kanchanwala Gems Vs. JCIT 288 ITR 10(SC) and Hon'ble High Court's decision in the case of Vijay Protein, Sanjay Oil Cake Industries, etc..
On the facts and in the circumstances of the case, and in law, the Hon'ble CIT(A) erred in not following the order of FIAT, Pune in dated 20.02.2015 in the case of MIs. Kolte Patil Developers Ltd. wherein 100% addition of bogus purchases was confirmed.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not relying on the decision of Allahabad High Court in the case of Sri Ganesh Rice Mills Vs. CIT 294 ITR 316 (All) wherein the entire amount of bogus purchases was disallowed and upheld.
On the facts and in the circumstances of the case, the Ld. 011(A) has erred in giving relief to the assessee to the extent of suppressed G.P. out of total bogus purchases even though-
(i) The assessee could not produce primary evidences like Octroi Receipts. Delivery Ohallan etc. evidence to prove the genuineness of the purchases before the CIT and before CIT(A)
Shekhar M Kharote (AY:09-10) (ii) The affidavits filed by the entry providers before Sales Tax Authorities cannot be ignored having evidentiary value.
Brief facts are that the assessee is a contractor and filed his return of income for AY 2009-10 on 29-09-2009 and assessment was completed under section 143(3) read with section 147 of the Act on 23-03-2014. The AO received information from Sales Tax Department Of Maharashtra that the assessee is one of the beneficiary to whom bogus purchase bills were provided by the following party: -
Sl Name Amount No. 1. Sai Enterprises ₹ 80,95,765/- Total ₹ 8095,765/- 4. According to AO, this is a bogus purchase and he added the entire amount of ₹ 80,95,765/- to the returned income of the assessee. Assessee preferred appeal before CIT(A), who restricted the addition at 12.5% of the profit rate of the bogus purchases by observing in Paras 6 and 7 as under:
“6. I have carefully considered the rulings of the various case laws cited by the Ld. counsel of the appellant and notice that the same are distinguishable from the facts of the case under appeal. The appellant is wholesale dealer in water purifier, coir mattresses and general supplies, as per audit remark in audit para no.8. During the year, the appellant has declared the GP of Rs.68,03,803/- @ 27.92% and NP of Rs.77,31,010/-, @ 25.09%, against total sales of Rs.3,08,13,881/-. From the facts of the case it is Shekhar M Kharote (AY:09-10) noticed that, during the year, the appellant had sold entire goods of Rs.3,36,03,325/- to M/S Mahila Kathya Kamgar, after purchasing the same from MIs Kontak Comforts Pvt. t.td.(Rs.1,52,03,114/-), Leo marketing (Rs.81,39,125/-) and Sal Enterprise(Rs.80,84,845/-). During the appellate proceeding, it was stated that the appellant had supplied/sold goods to Mahila Kathya Kamgar, as per its requirement, by placing the order to the respective manufacturers of goods. The Ld. A.R. also filed the copies of ledger account of all above four parties, along with quantity of tally, in respect of goods purchase from Sai Enterpises. Accordingly it is claimed that 87,500 meter of cotton coated fabric, 33,200 meter of P.U. Foam and 2,600 of corrugated box ply, was purchased from Sal Enterprises and same, in toto were supplied to Mahila Kathya Kamgar from the above facts, it is evident that the goods were supplied directly by the manufacturers /traders to the Mahila Kathya Kamgar, as per insturction of the appellant, in which he has procured the orders. The appellant has not incurred any major expenses to carry out the above business. The Ld. A.R. however, cited the rulings in respects of different trades which are not applicable in the case of appellant.
During the course of the appellant proceedings, the appellant was given various
Shekhar M Kharote (AY:09-10) opportunities to comply with various requirements such as furnishing of present communicable address, confirmation of ledger account and production of MIs Sai Enterprises for examination and verification. The Ld. A.R. however, has shown his inability to comply with these, rather vide order sheet noting dated 22/7/2015, requested to restrict the disallowance, at the rate of 12.5%, of the bogus purchases, as appellant has already shown NP at the rate of 25% of the total sales, in the wholesale business, which is one of the highest in this line of trade. I have carefully examined the above facts and noticed that the appellant has shown the GP @ 28% and NP 25.10% against total sales of 3.08 crores. The appellant has also furnished quantitative details of goods purchase from Sai Enterprises, which were duly sold to MIs Mahila Kathya Kamgar. In view of these facts, this is not a case where the entire cash has been siphoned off, by debiting the bogus purchase. This is a case, where at the most, the purchases/expenses, might have been inflated. Therefore, relying upon the decision of Hon’ble Gujarat High Court, in the case of Simit P Seth, 356 ITR 451 (Gui.) (2013), etc and considering the fact that the appellant being wholesale supplier, I hereby restrict the disallowance to Rs 10,11,970/- @12.5% of bogus purchases of Rs. 80,95,765/- and delete
Shekhar M Kharote (AY:09-10) the balance amount of Rs. 70,83,795/- (Rs 80,95,765/- Less Rs 10,11,970/-), which will meet the end of justice. Thus all the grounds of appeal, as raised above, are decided accordingly.”
Aggrieved, Revenue preferred appeal before Tribunal against restriction of profit rate at the rate of 12.5% of bogus purchases.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that admittedly, these are bogus purchases but assessee has produced complete reconciliation of purchase and sales and also stock tally. Even the payments are by account payee cheque to this party. In such circumstances, even the AO has not doubted the consumption of material purchased and it means that assessee has obtained bogus bill from this party and actually purchased material from grey market at a lesser price and also to avoid VAT payment. In view of these facts, the CIT(A) applied profit rate at the rate of 12.5% of bogus purchases by following the decision of Hon’ble Gujarat High Court in the case of Smith P Seth vs. CIT (2013) 356 ITR 451 (Guj.). In view of these facts and circumstances, we find no infirmity in the order of CIT(A) and hence, this appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 10-11-2017.